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When can a dominant terminate a business relationship? (Overview of Competition Events for April 2023)

When can a dominant terminate a business relationship? (Overview of Competition Events for April 2023)

We present to you the thirty-eighth instalment of the information service regarding events that occurred in the world of competition law in April 2023. Regular readers know that this is necessarily a purely subjective selection, and one simply cannot expect complete objectivity from it.

April is a month full of blossoms and we took a sniff of some of the flowers from the meadow of the competition world to see if they smell or .... This time it's mainly flowers from the abuse of dominance family of the genus refusal to deal and the cartel family of the genus price fixing. The bees and their keepers' announcements of planned honey price increases will then also add to the spring atmosphere.

Cartels and other prohibited agreements

Even in April, the Czech Competition Authority was particularly active in areas other than RPM and bid rigging. The Czech Competition Authority is also regularly monitoring the decision-making of chambers/associations. One of the two investigations completed in April by the Czech competition authority concerned an association. In this context, the Czech competition authority often likes to use the tools of competition advocacy and efficiently resolves competition problems without having to initiate proceedings or even issue a decision on a fine.

The subject-matter of the case resolved in April were the price declarations of the Association of Professional Beekeepers and the Czech Beekeepers' Association. Specifically, the representatives of these associations informed through the media about the expected price increases justified by the decrease in honey production due to the weather and the increase in input prices. During the investigation, the Czech competition authority pointed out to the representative of the associations that the association must not inform in any way about the price level achieved by its members, must not assess it and publicly call for a change. According to the Czech competition authority, even an indirect recommendation or a seemingly informal statement by a representative of an association may constitute a prohibited anti-competitive agreement.

Subsequently, both associations of beekeepers in cooperation with the Czech competition authority adopted corrective measures. One of the first was the information on the website about the ban on publishing the intention to increase honey prices, especially when communicating with the media (see e.g. here). How it looks in practice can be seen, for example, in this article. Thanks to the adoption of measures to protect competition on the honey sales market, the Czech competition authority then announced the end of the investigation without further procedural steps.

Another case of a prohibited anti-competitive agreement, which the Czech competition authority concluded in April, was the cartel agreement between consumer electronics distributors Witty and Beryko. The Czech competition authority accused them of mutual coordination of setting sales prices and other price parameters (e.g. discount events), allocating customers and exchanging sensitive business information when selling Xiaomi brand electronics. As part of the leniency program, the distributor Witty was completely forgiven the fine because he was the first to draw the attention of the Czech competition authority to the cartel agreement. The second distributor was initially threatened with a fine of approx. CZK 60 million. However, his final fine was eventually reduced to CZK 24.5 million, thanks to the successful application of several tools: requests for partial leniency, settlement and the introduction of an effective compliance programme.

This case confirms that implementing an effective compliance program is the best strategy in the long run: 1. It largely prevents anti-competitive practices. 2. In the event that one occurs, it will allow for its timely detection (and possible submission of a request for leniency as the first one). 3. In the event that a leniency application has already been submitted by someone else, it will make it possible to find additional evidence that will have added value for the competition authority (and will enable you to get a discount for leniency). 4. The Czech competition authority will provide a discount on the existing compliance programme if further specified conditions are met.

The French competition authority concluded proceedings on a cartel agreement on joint pricing of products and market division (lasting 30 long years) under similar circumstances. The case concerned the sale of subscriptions to economic intelligence and business information/database products. Bureau van Dijk (since 2017 a subsidiary of Moody's) reported the deal to the French competition authority in 2019, for which the fine was waived.

It is possible that the leniency request was the result of competitive due diligence, the performance of which we recommend to all acquirers of new companies. Thanks to it, it is possible to prevent surprising inheritances in the form of proceedings before competition authorities and large fines. The other party to the agreement, Ellisphere, was then fined – thanks to a settlement – a reduced amount of EUR 3.5 million.

How do dominants refuse to deal..?

One of the stated reasons for the adoption of the Digital Markets Act was the fact that proceedings with dominant digital platforms are too lengthy and there is a risk that their competitors will be forced to leave the market before the competition authority makes a decision and imposes remedies. In the past, we drew attention to the fact that competition authorities have tools at their disposal that can prevent this. One of them are interim measures that are very rarely used by the European Commission (EC). Here, the EC could learn from the competition authorities of the Member States.

At the beginning of April, the Italian competition authority opened proceedings with Meta regarding the abuse of economic dependence against the collective copyright administrator Società Italiana degli Autori ed Editori (SIAE). Meta terminated the negotiations with SIAE regarding the renewal of the contract regarding the musical works without reason and removed the music content managed by SIAE from its platforms. Meta is also accused of not providing SIAE with all the necessary information as part of the negotiations.

Simultaneously with the opening of the proceedings, the Italian Competition Authority issued interim measures ordering Meta to return to the negotiating table with SIAE and provide it with all the necessary information. The purpose is to restore balance to the business relationship. In the event of a dispute regarding the quality and quantity of the required information, the competition authority will appoint a qualified commissioner to assess the issue. Furthermore, the competition authority ordered Meta to restore the availability of music content managed by SIAE on Facebook and Instagram.

If a dominant company does not comply with the preliminary measure, it can be imposed fines for this, as the Greek competition authority has done for example.

As part of its investigation into possible abuse of dominance, the Greek competition authority issued a preliminary injunction in July 2019 ordering Imerys Bauxite to immediately supply bauxite in the required quantity to the aluminium producer Mytilineos. The relevant amendment to the contract should have been signed within ten days of the publication of the preliminary measure. Furthermore, the authority ordered Imerys Bauxite to resume negotiations with Mytilineos, stating that this should happen within twenty days of the publication of the preliminary measure. In the case of non‑compliance with the preliminary measure, the competition authority set a penalty of EUR 8,000 for each day of non-compliance.

Since the aforementioned obligations were not fulfilled, the Greek competition authority issued a decision in April of this year imposing both a fine of EUR 1.37 million for the refusal of bauxite supplies and the termination of long-term business cooperation, as well as a penalty of EUR 560,000 in total for failure to comply with the interim measures. In addition, in the final decision, the competition authority set an additional enforcement penalty of EUR 10,000 for each day of non-compliance with the remedial measure imposed in the decision.

In the foreseeable future, the Czech competition authority will also be able to impose such enforcement penalties ensuring the fulfilment of remedies or interim measures. The relevant amendment was recently approved by the Chamber of Deputies and is heading to the Senate.

In April, the Italian supreme court also dealt with the refusal of supplies. In 2019, the Italian competition authority fined M-Dis Distribuzione Media and its subsidiary To-Dis EUR 0.32 million for interrupting the supply of daily newspapers and magazines to local distributor Rovido Nello. He could not reasonably function on the market without these supplies. According to the competition authority, the suppliers did so because the termination of supplies to the local distributor Rovido Nello would reduce its value, for which M-Dis could then buy it. Subsequently, M-Dis would replace it with its own subsidiary, Liguria Press, in the local distribution of newspapers. In addition, the contract was terminated just 24 hours after another company announced the acquisition of Rovido Nello.

However, the Italian supreme court stated that the termination of the deliveries took place in accordance with the concluded contract. It also did not find abusive intent when it stated that M-Dis could have achieved the same result (which the competition authority suggested) simply and without cost by waiting for the contract to expire in the following year.

In this context, it should be remembered that not every refusal to deal is an abuse of dominance. Competition law also recognizes the principle of freedom of contract. Refusal to deal will thus be problematic if it contains an element of abuse. As is clear from all three mentioned cases of "refusal to deal", it is especially problematic when a long-term business relationship is interrupted and when such behaviour can limit competition on the market in which the dominant also operates.

The procedural corner

When enforcing EU competition law, the European Commission (EC) and the competition authorities of the Member States can become a sort of competitors. In order to ensure the uniform enforcement of competition law, however, proceedings conducted by the EC have priority. Sometimes, however, it can happen that even in an EU-wide case, the EC will allow one of the local competition authorities to issue its own decision on the matter. In April, the Court of Justice gave its approval.

In 2020, the EC opened an investigation into Amazon regarding its practices regarding BuyBox and Prime. About a year before that, the Italian competition authority also opened proceedings against Amazon regarding the possible abuse of a dominant position in relation to the online marketplace and logistics services provided by Amazon. (For this, the Italian competition authority subsequently imposed a fine of EUR 1.13 billion on Amazon.) In view of the ongoing Italian proceedings, the EC excluded the Italian territory from the territorial scope of its investigation.

Subsequently, Amazon has brought an action before the EU courts to order the joining of the two cases, citing Article 11(6) of Regulation 1/2003 (protection against parallel proceedings). This stipulates that, if the EC initiates proceedings, the national competition authorities lose jurisdiction to apply EU competition law in the same matter. According to Amazon, the exclusion of the territory of Italy was illegal, because if the procedure is initiated by the EC, it automatically covers the territory of the entire EEA. 

However, the Court of Justice, which ruled on this matter in April, stated that this interpretation is wrong. It would deprive the EC of the wide discretion it enjoys when making decisions. The EC thus has the possibility to define the territorial scope of its investigation/decision more narrowly than the EEA, or has the option not only to mark the specific Member States that the investigation concerns, but also to exclude selected Member States from its scope.

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